A STUDY ON

ONLINE TRADING SYSTEM

AT
INTER-CONNECED STOCK EXCHANGE OF INDIA
LIMITED
Project report submitted in
Partial fulfillment for the award of
MASTER OF BUSINESS ADMINISTRATION
DECLARATION
I here by declare that the project titled Online Trading System done
at Inter-Connected Stock Exchange of India Limited submitted by
me as part of partial fulfillment for the award of the Masters of
Business Administration, at XXXXX, XXXX University, XXX is a
record of bonafide work done by me.
I also declare that this report has to my knowledge is my own and is
neither submitted to any other university nor published any time
before.
XXXX


ACKNOWLEDGEMENT
I would like to express my gratitude for all the people, who
extended unending support at all stages of the project.
This report is a product of not only my sincere efforts but also the
guidance and morale support given by the management of Inter-
Connected Stock Exchange of India Ltd., XXXX.
I express my sincere gratitude to my guide XXXX, Incharge
Training, Inter-Connected Stock Exchange of India Ltd., XXXX for
sparing his valuable time in giving the valuable information and
suggestions all through, for the successful completion of the project.
I wish to express my sincere thanks to XXXX, Director & XXXX,
Guide and also the management and staff of my college for providing
the guidance and support.
I would like to acknowledge, my sincere thanks to all the
executives at Inter-Connected Stock Exchange of India Ltd., XXXX
who have extended helping hand in giving the information and being
a part of the study.
Last but not least, I express my sincere gratitude to all the
employees at Inter-Connected Stock Exchange of India Ltd., XXXX,
who have directly or indirectly contributed to the successful
completion of the project.
XXXX
CONTENTS
INTRODUCTION OF STUDY
A STUDY ON STOCK EXCHANGE
HISTORY OF STOCK EXCHANGE
SECURITIES EXCHANGE BOARD OF INDIA
NATIONAL STOCK EXCHANGE
COMPANY PROFILE
INTRODUCTION OF ISE
OBJECTIVES OF ISE
OBJECTIVES OF THE STUDY
SALIENT FEATURES OF ISE
ONLINE TRADING SYSTEM
TRADING PROCEDURE BEFORE ONLINE
INTRODUCTION TO ONLINE TRADING
OBJECTIVES OF ONLINE TRADING
ADVANTAGES & DISADVANTAGES OF ONLINE
TRADING
CLEARING AND SETTLEMENT
MECHANISM
TRADING CYCLE
SETTLEMENT PROCESS
TRADING SYSTEM IN ISE
DEMATRALISATION
NSDL
OBSERVATIONS
CONCLUSIONS
SUGGETIONS
BIBLIOGRAPHY
INTRODUCTION TO THE STUDY
Stock exchange is an organized market place where
securities are traded. These securities are issued by the government,
semi-government bodies, public sector undertakings and companies
for borrowing funds and raising resources. Securities are defined as
any monetary claims (promissory notes or .!."# and also include
shares, debentures, bonds and etc., if these securities are marketable
as in the case of the government stock, they are transferable by
endorsement and alike movable property. They are tradable on the
stock exchange. So are the case shares of companies.
"nder the Securities $ontract %egulation &ct of '()*,
securities+ trading is regulated by the $entral ,overnment and such
trading can take place only in stock exchanges recognized by the
government under this &ct. &s referred to earlier there are at present
-. such recognized stock exchanges in ndia. !f these, ma/or stock
exchanges, like 0ombay Stock 1xchange 2ational Stock 1xchange,
nter-$onnected Stock 1xchange, 3olkata, 4elhi, $hennai,
5yderabad and 0angalore etc. are permanently recognized while a
few are temporarily recognized. The above act has also laid down
that trading in approved contract should be done through registered
members of the exchange. &s per the rules made under the above act,
trading in securities permitted to be traded would be in the normal
trading hours ('6 &.7 to ...6 8.7# on working days in the trading
ring, as specified for trading purpose. $ontracts approved to be traded
are the following9
&. Spot delivery deals are for deliveries of shares on the same day
or the next day as the payment is made.
0. 5and deliveries deals for delivering shares within a period of : to ';
days from the date of contract.
$. 4elivery through clearing for delivering shares with in a period of
two months from the date of the contract, which is now reduce to ')
days.(%educed to - days in demat trading#
4. Special 4elivery deals for delivering of shares for specified longer
periods as may be approved by the governing board of the stock
exchange.
1xcept in those deals meant for delivery on spot
basis, all the rest are to be put through by the registered brokers of a
stock exchange. The securities contracts (%egulation# rules of '():
laid down the condition for such trading, the trading hours, rules of
trading, settlement of disputes, etc. as between the members and of
the members with reference to their clients.
HISTORY OF STOCK EXCHANGES IN INDIA
The origin of the Stock 1xchanges in ndia can be traced back to the
later half of '(th century. &fter the &merican $ivil <ar ('=*6-*'#
due to the share mania of the public, the number of brokers dealing in
shares increased. The brokers organized an informal association in
7umbai
named >The 2ative Stock and Share 0rokers &ssociation in
'=:)?.later evolved as 0ombay stock exchange.
ncreased activity in trade and commerce during the
@irst <orld <ar and Second <orld <ar resulted in an increase in the
stock trading. The ,rowth of Stock 1xchanges suffered a set after
the end of <orld <ar. <orld wide depression affected them most of
the Stock 1xchanges in the early stages had a speculative nature of
working without technical strength. &fter independence, government
took keen interest to regulate the speculative nature of stock
exchange working. n that direction, securities and $ontract
%egulation &ct '()* was passed, this gave powers to $entral
,overnment to regulate the stock exchanges. @urther to develop
secondary markets in the country, stock exchanges established at
7umbai, $hennai, 4elhi, 5yderabad, &hmedabad and ndore. The
0angalore Stock 1xchange was recognized in '(*.. &t present there
are -. Stock 1xchanges.
Till recent past, floor trading took place in all Stock
1xchanges. n the floor trading system, the trade takes place through
open outcry system during the official trading hours. Trading posts
are assigned for different securities where by and sell activities of
securities took place. This system needs a face A to A face contact
among the traders and restricts the trading volume. The speed of the
new information reflected on the prices was rather than the investors.
The Setting up of 2S1 and !T$1 (!ver the counter
exchange of ndia with the screen based trading facility resulted in
more and more Sock exchanges turning towards the computer based
trading. 0S1 introduced the screen based trading system in '((),
which known as 0!BT (0ombay on A line Trading System#.
7adras Stock 1xchange introduced &utomated 2etwork
Trading System (7&2T%&# on !ctober :, '((* &part from 0ombay
Stock 1xchanges have introduced screen based trading.
FUNCTIONS OF STOCK EXCHANGE
Maintain Activ T!a"in#$ Shares are traded on the stock
exchanges, enabling the investors to buy and sell securities. The
prices may vary from transaction to transaction. & continuous
trading increases the liCuidity or marketability of the shares traded on
the stock exchanges.
Fi%ati&n &' P!ic($ 8rice is determined by the transactions that flow
from investors demand and the supplier+s preferences. "sually the
traded prices are made known to the public. This helps the investors
to make the better decision.
En()!( (a' an" 'ai! "a*in#($ The rules, regulations and
bylaws of the Stock 1xchanges provide a measure of safety to the
investors. Transactions are conducted under competitive conditions
enabling the investors to get a fair deal.
Ai"( in 'inancin# t+ In")(t!,$ & continuous market for shares
provides a favorable climate for raising capital. The negotiability and
transferability of the securities, investors are willing to subscribe to
the initial public offering (8!#. This stimulates the capital
formation.
Di((-inati&n &' In'&!-ati&n$ Stock 1xchanges provide
information through their various publications. They publish the
share prices traded on their basis along with the volume traded.
4irectory of $orporate nformation is useful for the investor+s
assessment regarding the corporate. 5andouts, handbooks and
pamphlets provide information regarding the functioning of the Stock
1xchanges.
P!'&!-anc In")c!$ The prices of stocks reflect the
performance of the traded companies. This makes the corporate more
concerned with its public image and tries to maintain good
performance.
S*'.!#)*atin# &!#ani/ati&n$ The Stock 1xchanges monitor the
integrity of the members, brokers, listed companies and clients.
$ontinuous internal audit safeguards the investors against unfair trade
practices. t settles the disputes between member brokers, investors
and brokers.
REGULATORY FRAME 0ORK
This Securities $ontract %egulation &ct, '()* and Securities and
1xchange board of ndia (S10'# &ct, '((-, provides a
comprehensive legal framework. & .-tier regulatory structure
comprising the ministry of finance, S10' and the ,overning 0oards
of the Stock 1xchanges regulates the functioning of Stock
1xchanges.
Mini(t!, &' 'inanc$ The Stock 1xchange division of the
7inistry of @inance has powers related to the application of the
provision of the S$% &ct and licensing of dealers in the other area.
&ccording to S10 &ct, The 7inistry of @inance has the appellate
and the supervisory power over the S10. t has powered to grant
recognition to the Stock 1xchange and regulation of their operations.
7inistry of @inance has the power to approve the appointments of
executives chiefs and the nominations of the public representatives in
the government 0oards of the Stock 1xchanges. t has the
responsibility of preventing undesirable speculation.
T+ Sc)!iti( an" E%c+an# B&a!" &' In"ia
The Securities and 1xchange 0oard of ndia even though
established in the year '(==. %eceived statutory powers only on .6th
Danuary '((-. "nder the S10 &ct, a wide variety of powers are
vested in the hands of S10. S10 has the powers to regulate the
business of Stock 1xchanges, other security and mutual funds.
%egistration and regulation of market intermediaries are also carried
out by S10. t has responsibility to prohibit the fraudulent unfair
trade practices and insider dealings. Takeovers are also monitored by
the S10 has the multi pronged duty to promote the healthy growth
of the capital market and protect the investors.
T+ G&v!nin# B&a!" &' (t&c1 %c+an#($ The ,overning 0oard of
the Stock 1xchange consists of elected members of directors,
government nominees and public representatives. %ules, by laws and
regulations of the Stock 1xchange substantial powers to the executive
director for maintaining efficient and smooth day-to day functioning
of Stock 1xchange. The ,overning 0oard has the responsibility to
maintain and orderly and well-regulated market.
The ,overning body of the Stock 1xchange consists of '. members
of which
&. Six members of the Stock 1xchange are elected by the members
of the Stock 1xchange.
0. $entral ,overnment nominates not more than three members.
$. The board nominates three public representatives.
4. S10 nominates persona not exceeding three and
1. The Stock 1xchange appoints one 1xecutive 4irector.
!ne third of the elected members retire at annual
general meeting (&,7#. The retired member can offer himself for
election if he is not elected for two consecutive years. f a member
serves in the governing body for two years consecutively, he should
refrain offering himself for another two years.

The members of the governing body elect the president and
vice-president. t needs to approval from the $entral ,overnment or
the 0oard. The office tenure for the president and vice-president is on
year. They can offer themselves for re-election, if they have not held
for two consecutive years. n that case they can offer themselves for
re-election after a gap of one-year period
NATIONAL STOCK EXCHANGE
The 2ational Stock 1xchange (2S1# of ndia
became operational in the capital market segment on third 2ovember
'((; in 7umbai. The genesis of the 2S1 lies in the
recommendations of the pherwani committee ('(('#. &part from the
2S1. t had recommended for the establishment of 2ational Stock
market System also. The committee pointed out some ma/or defects
in the ndian stock market. The defects specified are.
'. Back of liCuidity in most of the markets in terms of depth
and breadth.
-. Back of ability to develop markets for debt.
.. Back of infrastructure facilities and outdated trading system.
;. Back of transparency in the operations that affect investors+
confidence.
). !utdated settlement system that are inadeCuate to cater to
the growing volume, leading to delays.
*. Back of single market due to the inability of various stock
exchanges to function cohesively with legal structure and
regulatory framework.
These factors led to the establishment of the 2S1.
T+ -ain &23ctiv( &' NSE a! a( '&**&4(
'#. To establish a nation wide trading facility for eCuities,
debt and hybrid instruments
-#. To ensure eCual access investors all over the country
through appropriate communication network.
.#. To provide a fair, efficient and transparent securities
market to investors using an electronic communication network.
;#. To enable shorter settlement cycle and book entry
settlement system.
)#. To meet current international standards of securities
market.
8romoters of 2S19 40, $$, @$, B$, ,$, S0, 0ank
of 0aroda. $anara 0ank, $orporation 0ank, ndian 0ank, !riental
0ank of $ommerce. "nion 0ank of ndia, 8un/ab 2ational 0ank,
nfrastructure Beasing and @inancial Services, Stock 5olding
$orporation of ndia and S01 capital market are the promoters of
2S1.
MEMBERSHIP$
7embership is based on factors such as capital adeCuacy,
corporate structure, track record, education, experience etc.
&dmission is a two-stage process with applicants reCuiring going
through a written examination followed by an interview. &
committee consisting of experienced people from the industry to
assess the applicant+s capability to operate as an exchange
member, interviews candidates. The exchange admits members
separately to <holesale 4ebt 7arket (<47# segment and the
capital market segment. !nly corporate members are admitted on
the debt market segment whereas individuals and firms are also
eligible on the capital market segment. 1ligibility criteria for
trading membership on the segment of <47 are as follows.
'#. The persons eligible to become trading members are
bodies corporate, companies institutions including subsidiaries of
banks engaged in financial services and such other persons or
entities as may be permitted form time to time by %0ES10.
-#.The whole-time directors should possess at least two
years experience in any activity related to banking or financial
services or treasury.
.#.The applicant must possess a minimum net worth of %s.-
crores.
;#.The applicant must be engaged solely ion the business of
securities and must not be engaged in any fund-based activities.
T+ *i#i2i*it, c!it!ia '&! t+ ca5ita* -a!1t (#-nt
a!6
'#. ndividuals, registered firms, bodies corporate, companies and
such other persons may be permitted under S$%&, '():.
-#. &pplicant must be engaged in the business of securities and
must not be engaged in any fund-based activities.
.#. 7inimum net worth reCuirements prescribed are as followsF
a#. ndividual and registered firms A %s.'66 Bacs.
b#.$orporate bodies A %s. '66 Bacs.
.
;#. 7inimum prescribed Cualification of graduation and two years
experience of handling securities as broker, sub-broker, authorized
assistant, etc must be fulfilled by
a# 7inimum two directors in case the applicant is a corporate
b#. 7inimum two partners in case of partnership firms and
c#. ndividual, in case of individual or sole proprietary concerns.
The two experienced director in a corporate applicant or trading
member should hold minimum of )G of the capital of the
company.

P!(nt T!a"in# Mc+ani(-
The 2ational system provides single, nation wide
Securities. t enables investors in one part of the country to trade at
the best Cuotes with an investors located in any other part of the
country through the members of the stock exchanges and
subseCuently clears and settles the trade in an efficient and cost
effective manner.
The primary ob/ective of the stock market is to provide clear
opportunity to the investors throughout the country to trade any
securities irrespective of the size of the order or the broker through
whom the order is routed. This provides the facility to execute the
buy out any extra cost to the investors.
There will be no trading floor in the exchanges. nstead, each trading
member will have a computer at his own office any where in ndia
which will be connected to the central computer system at the 2S1
through leased lines or HS&T+s (Hery Small &perture Terminal#, for
an interim transition period of six months and subseCuently by
satellite link.
HS&T+s are relatively smaller dishes similar to dish antenna for cable
T.H and have the benefit of not being very expensive.
& satellite network makes it possible to connect almost all the parts
of the nation Cuickly as it is easy to install, as against the ground lines
Such as dial up modems leased lines which are prone to disruptions,
satellite links on other hands ensure high speed, availability and
Cuality of the connection. This code of trading is known as >!n-line
Trading?.
INTRODUCTION
nter-connected stock exchange of ndia limited IS1J has been
promoted by '; %egional stock exchanges to provide cost-effective
trading linkageEconnectivity to all the members of the participating
1xchanges, with the ob/ective of widening the market for the
securities listed on these 1xchanges. S1 aims to address the needs of
small companies and retail investors with the guiding principle of
optimizing the existing infrastructure and harnessing the potential of
regional markets, so as to transform these into a liCuid and vibrant
market through the use of state-of-the-art technology and networking.
The participating 1xchanges of S1 in all about ;)66 stock
brokers, out of which more than -66 have been currently registered as
traders on S1. n order to leverage its infrastructure and to expand its
nationwide reach, S1 has also appointed around ;)6 4ealers across
:6 cities other than the participating 1xchange centers. These dealers
are administratively supported through the regional offices of S1 at
4elhi InorthJ, kolkata IeastJ, $oimbatore, 5yderabad IsouthJ and
2agpur IcentralJ, besides 7umbai.
S1 has also floated a wholly-owned subsidiary, S1
securities and services limited ISSJ, which has taken up corporate
membership of the 2ational Stock 1xchange of ndia Btd. I2S1J in
both the $apital 7arket and @utures and !ptions segments and The
Stock 1xchange, 7umbai n the 1Cuities segment, so that the traders
and dealers of S1 can access other markets in addition to the S1
markets and their local market. S1 thus provides the investors in
smaller cities a one-stop solution for cost-effective and efficient
trading and settlement in securities.
<ith the ob/ective of broad basing the range of its services,
S1 has started offering the full suite of 48 facilities to its Traders,
4ealers and their clients.
OBJECTIVES$
'. $reate a single integrated national level solution with access to
multiple markets for providing high cost-effective service to
millions of investors across the country.
-. $reate a liCuid and vibrant national level market for all listed
companies in general and small capital companies in particular.
.. !ptimally utilize the existing infrastructure and other resources
of participating Stock 1xchanges, which are under-utilized
now.
;. 8rovide a level playing field to small Traders and 4ealers by
offering an opportunity to participate in a national markets
having investment-oriented business.
). %educe transaction cost.
*. 8rovide clearing and settlement facilities to the Traders and
4ealers across the $ountry at their doorstep in a decentralized
mode.
:. Spread demat trading across the country

OBJECTIVES OF THE STUDY
The ob/ectives of the study are as follows9
To know the on-line screen based trading system adopted by
S1 and about its communication facilities for the appropriate
configuration to set network. This would link the S1 to
individual brokersEmembers.
To study about the back up measures with respect to primary
communication facilities, in order to achieve network
availability and connectivity back-up options.
Study about $learing K Settlements in the stock exchanges for
easy transfer and error prone system. &lso study about
computerization demand process.
To know about the settlement procedure involved in S1 and
also 2S4B operations.
$learing K defining each and every term of the stock exchange
trading procedures.
SCOPE OF STUDY$
The scope of the pro/ect is to study and know about !nline
Trading and $learing K Settlements dealt in nter-$onnected Stock
1xchange.
0y studying the !nline Trading and $learing K
Settlements, a clear option of dealing in stock exchange has been
"nderstood. "nlike olden days the concept of trading manually is
been replaced for fast interaction of shares of shareholder. 0y this we
can access anywhere and know the present dealings in shares.
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary
collection methods.
8rimary collection methods 9 This method includes the data
collection from the personal discussion with the authorized
clerks and members of the exchange.
Secondary collection methods9 The secondary collection
methods includes the lectures of the superintend of the
department of market operations and so on., also the data
collected from the news, magazines of the S1 and different
books issues of this study
LIMITATIONS OF THE STUDY
The study confines to the past --. years and present system of the
trading procedure in the S1 and the study is confined to the coverage
of all the related issues in brief. The data is collected from the
primary and secondary sources and thus is sub/ect to slight variation
than what the study includes in reality.
5ence accuracy and correctness can be measured only to the extend
of what the sample group has furnished.
SAILENT FEATURES
Nt4&!1 &' int!-"ia!i($
&s at the beginning of the financial year -66.-6;, );=
intermediaries (-6: Traders and .;' 4ealers# are registered on S1.
& broad of members forms the bedrock for any 1xchange, and in this
respect, S1 has a large pool of registered intermediaries who can be
tapped for any new line of business.
R&2)(t O5!ati&na* S,(t-(9
The trading, settlement and funds transfer operations of S1
and SS are completely automated and state-of-the-art systems have
been deployed. The communication network of S1, which has
connectivity with over ;66 trading members and is spread across;*
cities, is also used for supporting the operations of SS. The trading
software and settlement software, as well as the electronic funds
transfer arrangement established with 54@$ 0ank and $$ 0ank,
gives S1 and SS the reCuired operational efficiency and flexibility
to not only handle the secondary market functions effectively, but
also by leveraging them for new ventures.
S1i**" an" %5!inc" -an5&4!9
S1 and SS have experienced and professional staff, who
have wide experience in Stock 1xchangesE capital market institutions,
with in some cases, the experience going up to nearly twenty years in
this industry. The staff has the skill-set reCuired to perform a wide
range of functions, depending upon the reCuirements from time to
time.
A##!((iv 5!icin# 5&*ic,
The philosophy of S1 is to have an aggressive pricing
policy for the various products and services offered by it. The aim is
to penetrate the retail market and strengthen the position, so that a
wide variety of products and services having appeal for the retail
market can be offered using a common distribution channel. The
aggressive pricing policy also ensures that the intermediaries have
sufficient financial incentives for offering these products and services
to the end-clients.
T!a"in#7 Ri(1 Mana#-nt an" Stt*-nt S&'t4a! S,(t-(9
The !%0T (!nline %egional 0ourses nter-connected
Trading# and &LS (&utomated 1xchange ntegrated Settlement#
software developed on the 7icrosoft 2T platform, with consultancy
assistance from 7icrosoft, are the most contemporary of the trading
and settlement software introduced in the country. The applications
have been built on a technology platform, which offers low cost of
ownership, facilitates simple maintenance and supports easy up
gradation and enhancement. The soft wares are so designed that the
transaction processing capacity depends on the hardware usedF
capacity can be added by /ust adding inexpensive hardware, without
any additional software work.
Vi2!ant S)2(i"ia!, O5!ati&n(9
SS, the wholly owned subsidiary of S1, is one of the
biggest 1xchange subsidiaries in the country. !n any given day, more
than -)6 registered intermediaries of SS traded from ;* cities across
the length and breadth of the country.
'. 8rof. 8. H. 2arasimham 8ublic nterest 4irector
-. Shri H. Shankar 7anaging 4irector
.. 4r. S. 4. srani 8ublic nterest 4irector
;. 4r. 7. M. 3han 8ublic nterest 4irector
). 7r. 8. D. 7athew Shareholder 4irector
*. 7. $. %odrigues Shareholder 4irector
:. 7r. 7. 3. &nanda 3umar Shareholder 4irector
=. 7r. T.2.T 2ayar Shareholder 4irector
(. 7r. 3. 4. ,upta Shareholder 4irector
'6. 7r. H. %. 0haskar %eddy Shareholder 4irector
''. 7r. Dambu 3umar Dain Trading 7ember 4irector
TRADING PROCEDURE BEFORE ON.LINE
THE TRADING RING$
Trading on stock exchanges is officially done in the ring for a
few hours from ''.66 &.7 to -..68.7. Trading before or after
official hour is called 31%0 T%&42,. n the trading ring space is
provided for specified and non-specified sections. The members of
their authorized assistants have to wear a badge or carry with them
identify cards given by the exchange to enter the trading ring. They
carry a Sauda book or confirmation memos duly authorized by
exchange. The stock exchanges operations at floor level are highly
technical in nature. 2on-members are not permitted to enter into
stock market. 5ence, various stages have to be completed in
executing a transaction at a stock exchange. The steps involved in the
methods of trading have been given below9
A8CHOICE OF BROKER$
The prospective investor who wants to buy shares or the investor
who wants to sell his shares cannot enter into hall of the exchange
and transact business. They have to act through only member brokers.
They can also appoint their bankers for this purpose. Since, bankers
can become members of stock exchange as per the present
regulations.
So, the first task in transacting business on stock exchanges is to
choose a broker of repute or banker. Such people+s can ensure prompt
and Cuick execution of a transaction at the possible price.
&t present there are ;)66 authorized brokers in S1.
INTRODUCTION TO ONLINE TRADING
,one are the days of trading on the floor. Technology has
changed the landscape of the stock markets. The look of the stock
exchanges has undergone metamorphic changes in the recent years.
8rior to online trading, regional stock exchange was playing a very
important role in capital markets, as they were local investors.
%egional S1, which was unable to interact with other S1s started
developing this own screen based trading and connecting to other
scrip+s which were not available with them. This also helped in
accessing the Cuotes and other market information from other stock
exchange which proved vital in the functioning of the system as a
whole.
The trading network is depicted in given below 2S1 has
main computer which is connected through Hery Small &perture
Terminal (HS&T# installed at its office. The main computer runs on a
fault tolerant ST%&T"S mainframe computer at the 1xchange.
0rokers have terminals (identified as the 8$s in the given picture#
installed at their premises which are connected through HS&TsE
leased linesEmodems. &n investor informs a broker to place an order
on his behalf. The broker enters the order through his 8$, which runs
under <indows 2T and sends signal to the satellite via HS&TEleased
lineEmodem. The signal is directed to mainframe computer at 2S1
via HS&T at 2S1+s office. & message relating to the order activity is
broadcast to the respective member. The order confirmation message
is immediately displayed on the 8$ of the broker. This order matches
with the existing passive order(S# otherwise it waits for the active
orders to enter the system. !n order matching, a message is broadcast
to the respective member.


TRADING NET0ORK
5"0
ANTENNA
SATELITE
2S1 7&2@%&71 BROKERS
PREMISES
CORPORATE HIERARCHY
The Trading member has the facility of defining a hierarchy amongst
its users of the 21&T system. The hierarchy comprises9

The users of the trading system can logon as either of the
user type. The significance of each type is explained below9
A8 C&!5&!at Mana#!$ The corporate manager is a term assigned
to a user placed at the highest level in a trading firm. The facility to
set 0ranch order value limits and user order value limits is available
to the corporate manager.
$orporate 7anager
4ealer '' 4ealer '-
0ranch '
4ealer '
0ranch -
4ealer -
B8 B!anc+ Mana#!9 The branch manager is term assigned to a user
who is placed under the corporate manager. The branch manager can
set user order value limits for each of his branch.
B8 Da*!$ 4ealers are users at the lower most level of the hierarchy.
& dealer can view and perform order and related activities only for
oneself.
OBJECTIVES OF ON.LINE TRADING$
%educe and eliminate operational inefficiencies inherent in
manual system.
ncreased trading capacity in stock exchanges.
mprove market transparency, eliminate unmatched trades and
delayed reporting.
8rovides for online and offline monitoring, control and
surveillance of the markets.
8romote fairness and speedy matching.
1nsure smooth market operations using technology while
retaining the flexibility of conventional trading practices.
Setup various limits rules and controls centrally.
8rovide brokers with their data on electronic media interface
with the brokers back office system.
8rovide public information on scrip prices, indices for all users
of the system.
8rovide analytical data for use of stock exchange in analysis
and reporting
To face stiff competition from other stock exchange.
$onsolidate trader+s data and interface with clearing and
settlement.
PLACEMENT OF ORDER$
The next step in planning of order for the purchase or sale
of Securities with the broker. The order is usually by telegram,
telephone, letter, fax etc., or in person. To avoid delay it is placed
generally over the phone. The orders may take any one of the forms
such as at best order, limit order, immediate or cancel order,
discretionary order, limited discretionary order, open order and stop
loss order.
ENTRY OF ORDER INTO THE BOOKS$
&fter receiving the order, the member enters them in his
books and the purchase and sale orders are distributed among his
assistants to handle them separately in non-specified and odd-lots.
EXECUTION OF ORDER$
0ig brokers transact their business through their authorized
clerk. Small ones out their business personally. !rders are executed
in the trading ring of the S1. This works from '-966 noon to -966
p.m discretionary order on all working days from 7onday to @riday
and a special hour session on Saturday.
The floor of the stock exchange is divided into number of
markets (pits# according to the nature of security deal in. The
authorized clerkEbroker goes to the pit and /obbers offer two way
Cuotes for the scrips they deal in. they act as market makers and
provide liCuidity to the market. The system has been designed to get
the bet lids and offers from the /obber+s book as well as the best buy
and sell orders from the book. f the Cuotation is not acceptable to the
brokers, he may make a counter bidEoffer
"ltimately the bargains may be closed at a price mutually
acceptable to both the parties. n case the Cuotation is not acceptable
to him, the broker may go to another dealer and make a bargain. &ll
bargains on the stock exchanges are settled by word of mouth and
there is no written contract signed immediately by the parties
concerned. !nce the transaction is finalized, the deals are recorded in
a $haupri %ough notebook or transaction note or confirmation
memos. Soudha block books or confirmation memos are provided by
the stock exchange. The details are recorded in these books also. The
prices at which different scrips are traded on a particular day
published on the next day in the newspapers. &n authorized
representative of the stock exchange is also present in the hall to
supervise the trading.
PREPARATION OF CONTRACT NOTES$
"sually, the authorized clerks enter the particulars of the
business transacted during a particular day in N3acha Sauda 0ook+
they are transferred to N8ucca Sauda 0ook+, which are maintained
separately for the ready delivery contracts. Then the
brokerEauthorized clerk prepares a contract note. & contract note is a
written agreement between the broker and his client for the
transaction executed. t contains the details of the contract made for
the purchaseEsale of Securities, the brokerage chargeable, name of the
company, number of shares boughtEsold, net rate, etc., it is prepared
in a prescribed from and a copy of it is also sent to the client.
PLACING ORDER 0ITH THE BROKER$
The next step is placing an order for the purchaseEsale of securities
with the broker. The order is usually placed over telephone, fax. t
can also take the form of telegram or letter or in person. The order
placed may be any of the following varieties (largely classified on the
basis of price limits that it imposes.#.
AT BEST ORDER 9OR: BEST RATE ORDER$
>0uy '666 LMO ltd.?, it does not specify any price. t means buy
LMO Btd. Securities at the prevailing market price. These are
executed very fast as there is no price limits.
LIMIT ORDER$
>0uy '66 LMO Btd. &t %s '66?, it is an order for the purchase of
shares at a specified price by the client. (%s '66#
LIMITED DISCRETIONARY ORDER$
>0uy '666 LMO Btd., around %s.'66?. t gives discretion to the
broker. The price can be a little above %s '66. 5ow much discretion
is implied depends on how the broker and client define around.
OPEN ORDER$
t is an order to buy or sell without fixing any time or price limit on
the execution of the order.
STOP LOSS ORDER$
>0uy '66 LMO Btd. P %s '- to stop %s '6?. t means buy '66 LMO
Btd securities at the market rate of %s. '- but if on the same day the
price falls to %s. '6 immediately sell of the securities Eshares. Thus an
attempt is made to limit the loss of sudden unfavorable shift in the
market.
NET RATE ORDER$
>0uy '666 LMO Btd. P%s..6 net >would mean that the client is
willing to buy '666 LMO Btd. @or no more than %s..6 per security
inclusive of brokerage payable to the broker. 2et rate is purchase or
sale rate minus brokerage.
MARKET RATE ORDER$
7arket rate is net rate plus brokerage for purchase and net minus
brokerage for sale. So, >0uy '666 LMO Btd. P%s..6 market? would
mean that the client is willing to pay %s..6 plus brokerage for each
security of LMO Btd.
CLEARING HOUSE
The exchange has a clearing house as a part of its 7arket
!perations 4epartment to collect the securities from all members and
distribute to each member, all the securities that are due to him in
respect of every settlement. The whole of the operations of the
clearing house are computerized. $5 is like are bank where all the
members of S1 maintain their accounts. $5 acts as a member
between the buyer and seller. t gets a record of all the transactions
(buying and selling# done by a particular week and process these
transactions and directs the members to deliver the shares or make
payment on the pay-in day.
!n the payout day, the $5 gives the delivery and the
payment to the members according to their respective positions.
There are ) counters in the S1s, $5 where bad deliveries, auction,
odd-lot shares transaction, spot transaction etc.., are dealt in respect
of all the transactions done from 7onday to @riday all the shares will
have to be delivered through the S1s $5 as per the settlement
program field, which is generally, a Saturday on next.
NORMAL TRANSACTION$
n case of regular transaction, shares are deposited in
clearing house on Tuesday and <ednesday. 8ayout will be on
Thursday. 4eliveries will also be on Thursday.
STOCK MARKET TRADING ON INTERNET
The ma/or events that will take place in the ndian $apital
7arket are introduction of index-based futures trading on internet.
Trading on internet means that the investor+s will actually buy and
sell the stocks on-line through the net. & committee was setup by
S10 to develop regulatory parameters for use internet trading. S10
approved the report on the committee. S10 decided that internet
trading could take place in ndia within the existing legal framework
through use of order routing system, which will route order from
client to brokers,. @or trade execution on registered stock exchanges.
The broad also took note of the recommended minimum technical
standards for ensuring safety and security of transaction between
clients and brokers, which will be forced by the respective stock
exchanges.
ADVANTAGES OF INTERNET TRADING
t will help in reducing transaction costs particularly for
overseas and remote located investors.
t will provide real time Cuotes and on-line trading facility at a
much cheaper cost.
@acility of transaction business from the terminal of the
investors and will help him making rational /udgment or
decisions.
t will bring down the brokerages fees and increases the trading
volumes.
Quick response in transaction i.e. giving the order verification
and acknowledgement.
t allows transparent companies of services and easy price
discovery.
t is easy enough to set up either as individual account for
margins trading or settle transactions by credit card.
t is easy for brokers to monitor and maintain online accounts
and the possibility of miss-trading is less.
Surveillance is easy as there is very less scope for speculation
The investor is provided with best offer
Trading procedure is easy and fully automated.
Ea(i! t!an(acti&n 5!&c((in#.
8rofit in time9 nvestor can make profits by selling shares when the
going is good. They do not have to instruct their brokers on the cut
off price to sell shares.
1ase and transparency9 Since the broking, bank and demat account
are all electronically connected, all transaction get updated, demat
account shows the latest stockholding statement while the bank
account shows the balance amount after buying or selling of shares.
8recaution9 $heck for hidden costs of broker+s age. 0eware of net
seamstress. 2ever double click the mouse during execution of trade
avoids cyber cafes and change password regularly.
Bess fees9 shares traded online reCuire no human intervention to
match buys and sells. This means that commission costs are cut
dramatically for the freCuent investor.
PROBLEMS OF ONLINE TRADING
&ll the stock exchanges in ndia were mechanized in the
year '((; 2ovember. That was the year when the stock
exchanges introduced screen based trading across the
country.
<hile on line trading gives you speed and price advantage,
there is some risk and disadvantage to entering orders on-
line. The page alerts you to any pitfalls you should watch
out for if you want to use the internet to trade stocks.
f you do commit to trading online, you must be careful
when you enter stock orders. t is easy to make mistakes, but
the market and your brokers may not be sympathetic. !nce
an order is submitted, there may be nothing you can do to
take it back if you made a mistake. The various types of
orders you enter can be confusing.
ndividuals are restricted to first hand financial guidance.
This simply means that the individual is himselfEherself
alone to make the decisions.
Tax (sales tax and value added tax# evaluation becomes an
issue, especially when you are trading internationally.
$hanges are that one has no idea who is dealing with on the
other end, so it is advisable to gather all the possible
information about the party one is dealing with. n short are
full knowledge is to be known.
!nline trading as left individual open to too much
information. This is harmful since it leaves brokerages wide
open to sensitive data.
<hen network crashes there will be problems and delays
due to a large influx of traffic and rapid online trading criteria. @or
instance on -:
th
!ct '((: there was a one day crash, which caused
online trading on the 2ew Mork Stock 1xchange to stop and brokers
were unable to conduct business.
f you are going to trade online, you were obviously the one
making all the trading choices. To make your trading decisions, you
need to research your stocks and constantly pay attention to market
news. This will reCuire some time, as you pursue your sources of
market information and use online tools
CLEARING & SETTLEMENT TRADING MECHANISM
The clearing and settlement mechanism in ndia securities
market has witnessed several innovations during the last decade.
These include use of the state-of-art information technology,
compression of settlement cycle, dematerialization and electronic
transfer of securities, securities lending and borrowing,
professionalisation of trading members, fine-tuned risk management
system, emergence of clearing corporation to assume counterparty
risk etc., though many these are yet to permeate the whole market.
Till recently, the stock exchanges in ndia were following a
system of account period settlement for cash market transactions,
expert for transaction in a few active securities, which were settled
under tR. rolling settlement. The rolling settlement has been
introduced for all securities. <ith effect from &pril ', -66. TR-
rolling settlement has been introduced. The stock exchanges were
also offering deferral products to provide leverage to members to
postpone their settlement obligations. The transactions are not settled
immediately but after - days after the trade day. The members
receive the fundsEsecurities in accordance with the pay-inEpay-out
schedules notified by the respective exchanges. ,iven the growing
volume of trades and market volatility, the time gap between trading
and settlement gives rise to settlement risk. n recognition of this, the
exchanges and their clearing corporation employ risk management
practices to ensure timely settlement of trades. The regulators have
also prescribed elaborate margining and capital adeCuacy standards to
secure market integrity and protect the interests of investors. The
exchanges not providing counter-party guarantee have been advised
by S10 to set up trade guarantee funds, which would honour pay-in
liabilities in the event of default by a member. n pursuance to this,
'* out of -. exchanges have set up tradeEsettlement guarantee funds.
The trades are settled irrespective of default by a member and the
exchange follows up the defaulting member subseCuently for
recovery of his dues to the exchange. The market has full confidence
that settlements will take place in time and will be completed
irrespective of possible default by isolated trading members.
7ovement of securities has become almost instantaneous in the
dematerialized environment. Two depositories viz., 2ational
Securities 4epositories Btd. (2S4B# and $entral 4epositories
Services Btd. ($4SB# provide electronic transfer securities and more
then ((G of turnover is settled in dematerialized form. &ll actively
traded scrip+s are held, traded and settled in demat form. The
obligations of members are downloaded to membersEcustodians by
the clearing agency. The membersEcustodians make available the
reCuired securities in their pool accounts with 4epository 8articipants
(48s# by the prescribed pay-in time for securities. The depository
transfers the securities from the pool accounts of membersEcustodians
to the settlement account of the clearing agency. &s per the schedule
determined by the depository from the settlement account of the
clearing agency to the pool accounts of membersEcustodians. The
pay-in and pay-out of securities is affected on the same day for all
settlements.
TRANSACTION CYCLE
& person holding assets (securitiesEfunds#, either to meet his liCuidity
needs or to reshuffle his holdings in response to changes in his
perception about risk and return of the assets, decides to buy or sell
the securities. 5e finds out the right broker and instructs him to place
buyEsell order on an exchange. The order is converted to a trade as
soon as it finds a matching sellEbuy order. The trades are cleared to
determine the obligations of counterparties to deliver securitiesEfunds
as per settlement schedule. 0uyerEseller delivers fundsEsecurities and
receives securitiesEfunds and acCuires ownership over them. &
securities transaction cycle is presented given below.
T!an(acti&n c,c*
8lacing
order
Trade
1xecution
4ecision to
Trade
@undsE
Securities
Transaction cycle
Stt*-nt( 5!&c((
<hile 2S1 provides a platform for trading to its
trading members, the 2ational Securities $learing $orporation Btd.
(2S$$B# determines the fundsEsecurities obligations of the trading
members and ensures that trading members meet their obligations.
The clearing banks and depositories provide the necessary interface
between the custodiansEclearing members (who clear for the trading
members or their own transactions# for settlement of fundsEsecurities
obligations of trading members. The core functions involved in the
process are9
a# T!a" Rc&!"in# 9 The key details about the trades are recorded
to provide basis for settlement. These details are automatically
recorded in the electronic trading system of the exchanges.
b# T!a" C&n'i!-ati&n$ The counterparties to trade agree upon
the terms of trade like security, price, and settlement date, but not the
counterparty which is the 2S$$B. The electronic system
automatically generates confirmation by direct participants. The
Settlement
of Trades
$learing of
Trades
ultimate buyersEsellers of securities also affirm the terms, as the
funds-securities would flow from them, although the direct
participants are responsible for settlement of trade.
c# Dt!-inati&n &' &2*i#ati&n 9 The next step is determination of
what counter-parties owe, and what counter-parties are due to receive
on the settlement date. The 2S$$B interposes itself as a central
counterparty between the counterparties to trades and nets the
positions so that a member has security wise net obligation to receive
or deliver a security and has to either pay or receive funds.
d# Pa,.in &! ')n"( an" Sc)!iti( 9 The members bring in their
funds-securities to the 2S$$B. They make available reCuired
prescribed pay-in time. The depositories move the securities available
in the accounts of members to the account of the 2S$$B. Bikewise
members with funds obligations make available reCuired funds in the
designated accounts with clearing banks by the prescribed pay-in
time. The $$ sends electronic instructions to the clearing banks to
debit member+s accounts to the extent of payment obligations. The
banks process these instructions, debit accounts or members and
credit accounts of the 2S$$B.
e# Pa,.&)t &' F)n"( an" Sc)!iti( 9 &fter processing for
shortages of fundsEsecurities and arranging for movement of funds
from surplus banks to deficit banks through %0 clearing, the
2S$$B sends electronic instructions to the depositoriesEclearing
banks to release pay-out of securitiesEfunds. The depositories and
clearing banks debit accounts or the 2S$$B and credit accounts or
members. Settlement is complete upon release of pay-out of funds
and securities to custodiansEmembers. The settlement process for
transactions in securities in the $7 segment of 2S1 is presented in
the @igure ....
f# Ri(1 Mana#-nt$ & sound risk management system is
integral to an efficient settlement system. The 2S$$B ensures that
trading members+ obligations are commensurate with their net worth.
t has put in place a comprehensive risk management system, which
is constantly monitored and upgraded to pre-empt market failures. t
monitors the track record and performance of members and their net
worthF undertakes on-line monitoring of members+ positions and
exposure in the market collects margins from members and
automatically disables members if the limits are breached.
SETTLEMENT PROCESS IN CM SEGMENT OF NSE

'
= (
DEPOSITORIES
CLEARING
BANKS
NSE
2S$$B
* :
- .
) ;
'6 ''
E%5*anati&n($
('# Trade details from 1xchange to 2S$$B (real-time and end of
day trade file#.
(-# 2S$$B notifies the consummated trade details to
$7sEcustodians who affirm back. 0ased on the affirmation, 2S$$B
applies multilateral netting and determines obligations.
(.# 4ownload of obligation and pay-in advice of fundsEsecurities
(;# nstructions to clearing banks to make funds available by pay-in
time.
()# nstructions to depositories to make securities available by pay-
in-time.
CUSTODIAN(;CM(
(*# 8ay-in of securities (2S$$B advises depository to debit pool
account of custodians. 7s and credit its account and depository does
it#.
(:# 8ay-in of funds (2S$$B advises $learing 0anks to debit
account of custodiansE$7s and credit its account and clearing bank
does it#.
(=# 8ay-out of securities (2S$$B advises depository to credit pool
account of custodiansE$7s and debit its account and depository does
it#.
((# 8ay-out of funds (2S$$B advises clearing 0anks to credit
account of custodiansE$7s and debit its account and clearing bank
does it#.
('6# 4epository informs custodiansE$7s through 48s.
(''# $learing 0anks inform custodiansE$7s.
T!a"in# S,(t- in ISE
Transactions for the S1 segment are routed from the
Trader <ork Stations (T<S# to the central trading computer
installed at S1Ss office in Hashi, 2avi 7umbai. The T<Ss are
connected to the central trading computer of S1 through leased
lines, S42 lines, H82 connectivity and HS&T network. The
technology infrastructure optimizes and shares the system
resources for access to S1 and 2S1 segments.
&s far as access to the 2S1 segment is concerned, all
orders are routed to 2S1 through the central order routing
system installed at Hashi. This computer is connected to the
2S1 trading system through a -mbps leased line acting as the
primary link between S1 and 2S1 and it also has a HS&T link
as a backup. <ithin the 8articipating Stock 1xchange premises,
the T<Ss reCuired for S1 and 2S1 segments are connected on
B&2 segments to the HS&T infrastructure already established
CLEARING AND SETTLEMENT
n tune with the S10 decision, S1 has implemented
TR- settlement cycle from &pril ', -66.. The total delivery-
inEdelivery-out and pay-inEpay-out of Traders and 4ealers are
computed on a netted basis. &fter netting, the net position for
each centre is computed. f there is a settlement position at a
centre, then funds or securities are moved in and out from one
centre to another, as the case may be, so as to fulfill the total
pay-in or pay-out position of funds and securities. The
movement of funds is through 54@$ 0ank and $$ 0ank.
The settlement of securities takes place only in a dematerialized
mode using both the depositories in ndia, i.e. 2ational
Securities 4epository Bimited (2S4B# and the $entral
4epository Services(ndia#Bimited($4SB#.8ay-in of funds is
done by way of direct debits to the settlement accounts
maintained by the Traders and 4ealers with 54@$ 0ank and
$$ 0ank. n the case of margins, debits are affected on TR'
by electronically debiting the settlement accounts of Traders
and 4ealers. Similarly, pay-out of funds is affected by the
1xchange through direct credits to the settlement accounts of
the Traders and 4ealers.
n the case of operations on SS, the trading
intermediaries (Sub-brokers of SS# are reCuired to maintain
separate settlement accounts for the $apital 7arket segment
and @utures K !ptions segment of 2S1 with any one of the
designated $learing 0anks (54@$ 0ank and $$ 0ank at
present#. Similarly, another settlement account will be reCuired
for the 1Cuities segment of 0S1, when introduced. 7argin
collection and refund are through direct debits and credits by
SS to the settlement accounts of the trading intermediaries.
@unds pay-in and pay-out likewise, are handled through the
electronic funds transfer system. n the @utures K !ptions
segment, end clients are reCuired to maintain such accounts
with the $learing 0anks and all debits and credits are effected
by SS to these accounts.
&s far as securities is concerned a client of a trading
member having a net delivery position, can transfer securities
from his demat account either directly to the pool account of
SS or route them through the account of the trading member.
8ay-out of securities is always effected by SS into the account
of the concerned trading members, who are then obligated to
deliver the same to their clients.
INVESTOR PROTECTION
&ll settlement liabilities amongst Traders and 4ealers of S1 are
guaranteed by the 1xchange+s Settlement ,uarantee fund. n
addition, investors are protected against non-fulfillment of
commitments by TradersE4ealers through the nvestor 8rotection
@und.
%egion wise 4istribution of Traders and 4ealers
(&s on Danuary ', -66)#
%egion States $overed
%egistered
4ealers
%egistered
Traders
Total
<est ,oa, ,u/arat, 7aharashtra '(; ;) .;(
2orth
5aryana, Dammu K 3ashmir,
4elhi, 8un/ab, %a/asthan,
"ttaranchal, "ttar 8radesh
:' ') =*
1ast
&ssam, 0ihar, Dharkhand,
!rissa, <est 0engal
:: :; ')'
South
&ndhra 8radesh, 3erala,
3arnataka, Tamil 2adu
'' ''( '.6
$entral $hattisgarh, 7adhya 8radesh ( '; -.
T!T&B .*- -*: *-(
DEMATERIALI<ATION

4ematerialization is a process by which physical shares
of investors are converted to an eCuivalent number of Securities in
electronic form and credited in the investor+s account with his
4epository 8articipant.
4ematerialized trading is now compulsory for all
investors. 0eginning of first week of Danuary '(((, investor can trade
in specific scripts in the 4emoralization form. They can provide and
receive delivery only in a 4ematerialized form and share certificate
will not be changed for these scripts.
& depository is an organization where Securities of
shareholder are held in the electronic form at the reCuest of the
shareholder through 4epository 8articipant (48s#. The system is
comparable to that in a bank. f an investor wants services offered by
a depository, he would have to open an account with it through a 48-
similar to opening an account with any other branches of the bank in
order to avail of its services.
4ematerialization is a process by which physical
certificates of an investor are taken back by the companyEregistrar
and actually destroyed and an eCuivalent number of Securities are
credited in the depository account of those investors. & 4epository
8articipant is investor+s agent in the system. 5e maintains investor+s
Securities account and intimates the status of holdings from time to
time to the investor.
Ba(ic T!-in&*&#i( &n D-at Stt*-nt
%efers to the process whereby all those who have
made purchases make a payment and all those who have made
sales deliver shares. The exchanges ensure that the buyers who
have paid for the shares purchased by them receive the shares.
Similarly sellers who have given delivery of shares to the
exchange receive payment for the same.
SETTLEMENT CYCLES9 Settlement $ycle refers to a
calendar according to which all purchase and sale transactions
done within the dates of the settlement cycle are settled on a net
basis. 2S1 and 0S1 currently follow daily settlement cycles.
n a rolling settlement, each trading day is
considered as a trading period and trades executed during the
day are settled based on the net obligations for the day. &t 2S1
and 0S1, trades in rolling settlement are settled on a TR- basis
i.e. on the -
nd
working day. @or arriving at the settlement day all
intervening holidays, which include bank holidays, 2S1E0S1
holidays, Saturdays and Sundays are executed. Typically trades
taking place on 7onday are settled on <ednesday, Tuesday+s
trades settled on Thursday and so on.
8&M 2 K 8&M !"T9 8ay n refers to your obligations towards the
exchanges and 8ay !ut refers to exchange obligation towards you.
&ll 8ay ns and 8ay !uts take place on a >TR-? days basis, where
>T? is the trading day and plus two more trading days. So if you buy
some shares on 7onday, you would have to pay money which is a
8ay n and you would receive shares, which is a 8ay !ut. 0oth of
these would take place ion <ednesday.
B7T !%41% 9 Bimit !rders allow you to place a buyEsell order at a
price defined by you. The execution can happen at a price more
favorable than the price that has been defined by you. Mou can place
limit orders during holidays K non-market hours too.
7arket !rders9 7arket !rders can be placed only during market
hours (i.e. when the exchanges is open for trading#. 7arket !rders
have different interpretations for both 2S1 and 0S1.
SQ"&%1 !@@ $ SCuare !ff means buying and selling, selling and
buying on the same day. @or example, if you have bought '66 T
shares of 2@T1$ today morning and later on at the end of the
day, if you sell 2@T1$, '66 shares, it /ust means that you have
sCuared off your order.
=8 OPENING CLEARING ACCOUNTS FOR SETTLEMENT
OF TRADES$
&ll the trades executed at the exchanges are settled by the
clearing member ($7#, as in the case of Securities in the physical
form. To settle trades in 4emat segment each $7 should open one
clearing account with any of the 48.
The procedure for opening clearing accounts is9
&pproach a 48.
@ill up an account opening form.
Sign on an agreement with the 48.
&pplication is forwarded to 2S4B by 48.
2S4B allots a number identified as $7-08-4.
48 opens account and an account number is providing along
with $7-08-4 to the clearing member.
The clearing account consists of three parts9
8ool account
4elivery account
%eceipt account
'. 8!!B &$$!"2T9
t has two roles to play in clearing of securities,
0efore pay in the selling client of the $7 transfers Securities
from his client account to the $7 pool account.
$B1&%2,
&$$!"2T
41BH1%M
&$$!"2T
8!!B &$$!"2T %1$18T
&$$!"2T
S1BB2,
$B12T
0"M2,
$B12T
The $7 transfers the Securities from his pool account to the
account of the buying client.
-. 41BH1%M &$$!"2T9
The $7 transfers the Securities in, from the pool account to the
delivery account before pay in, at the time of pay- in 2S4B flushes
out the securities in the delivery account and transfers the same to the
$$E$5.
.. %1$18T &$$!"2T9
!n pay Aout day, the $$E$5 transfers Securities to the pool
account through the account.
$7 has to ensure that before book closure or record date of any
company the Securities are moved from $7 pool account to a
beneficiary account as holding in pool account for longer period is
not allowed.
>8 SETTLEMENT$
n the depository system, any trade that is cleared and settled
through the clearing corporation ($$E$5# is called market trade.
8rocedure for pay-in of securities
,ive %eceipt instruction to the 48 for transfer of Securities from
client account to the pool account or give a standing instruction for
the same.
4elivery to $$E$5 instruction for the transfer of Securities from
pool and account to delivery account for pay-in.
0oth pay-in and pay-out happens to be on )thworking day
after the trading and the instruction to transfer the Securities from the
pool account to delivery account must be given before pay-in such
that this transfer is affected before pay-in. the transfer instruction is
taken as an authority to transfer the security irrespective of when the
client gives the delivery instruction, the Securities will be parked in
the delivery account till final pay-in and the facility of multiple
instructions from the pool account is also provided to the investors.
n case of excess transfer of shares to the delivery account
or excess delivery to $$E$5 the instruction slip can be cancelled and
issued new one or the $$E$5 will return the Securities at the time of
pay-out respectively.
8rocedure for pay-out of securities
Transfer of Securities from $$E$5 to pool account through
receipt in account on pay-out.
$B1&%2, 41BH1%M
&$$!"2T
8!!B
&$$!"2T
4elivery instruction to transfer from pool account to client on
pay-out.
!n the delivery of the instruction from the client+s name,
client+s 48, 4 and 48 name of the client must be mentioned and
ensure that receipt instruction given by client to receive the Securities
bears the same execution date as given in the delivery instruction.
5owever, the broker can hold the Securities in the pool account until
the client meets his obligations but before the closure of books, the
balances must be transferred as the balances in the pool account,
which are not entitled for any corporate benefits.
FLO0 CHART TO EFFECT CLEARING AND SETTLEMENT
OF MARKET TRADES

$B1&%2, %1$18T 8!!B
Send receipt instruction for
transfer from client account
to pool account
,ive delivery instruction to
your 48 for transfer from
pool account to $$
!n payout you will receive
securities from $$ to your
pool aEc automatically
&ny time before
pay-in
Int!.D5&(it&!, T!an('!(
& transfer of securities from an account in one depository to
an account in another depository is termed as an inter-depository
transfer. This facility is Cuite similar to the account transfers within
2S4B.
t can be done only for Securities that are available for
4ematerialization on both the depositories. The account in 2S4B can
be either a clearing account or a beneficiary account. @or debiting the
clearing account or the beneficial account with 2S4B, the form for
>inter-depository delivery instruction? is reCuired to be submitted by
the clearing memberEbeneficial owner to its 48.
,ive delivery instruction
for transfer of securities
from pool aEc to client aEcs
&ny time before or
after pay-out
@or crediting the clearing account or the beneficial
account, the standard instruction given for automatically crediting the
account is applicable. n case the standard instructions are not given,
then the form for >inter-depository receipt instruction? is reCuired to
be submitted by the clearing memberEbeneficial owner to its 48.
&s both the depositories are connected to each other,
the batches to effect inter-depository transfers are presently
exchanged twice on the working day.
The issuerEregistrar and transfer agent is informed
about the transfer by both the depositories and it amends its records
accordingly.
,overnment Securities cannot be transferred from one depository to
another using this facility.
NATIONAL SECURITIES DEPOSITORY LIMITED
2S4B was inaugurated in '((*, as the depository in the country
to avoid the myriad problems in settlement.
n depository system, Securities are held in securities
(depository# accounts, which is more or less similar to holding funds
in the bank accounts. Transfer of ownership is done through simple
account transfer. This method does away with all the risks and
hassles normally associated with paper work. $onseCuently, the cost
of transaction in depository environment is considerably lower as
compared to transaction in physical certificates.
Trading in dematerialized Securities is Cuite similar to trading in
physical Securities. The ma/or difference is that at the time of
settlement, instead of deliveryEreceipt of Securities in the physical
form, the same is affected through account transfer. $urrently
dematerializes trading is available at 2S1, 0S1 and $S1.
1xclusive 4emat segment follows rolling settlement (TR-# cycle
and the unified (erstwhile-physical# segment follows account period
settlement cycle.
&ll investors, other than the institutional investors, can
deliver Securities either in the physical or dematerialized form in the
market.
@rom Danuary ;, '(((, all categories of investors can
deliver only in 4ematerialized form with respect to a select list of
securities. 5owever initially this was applicable only at those
exchanges, which have /oined the depository, but S10 has also
specified that this list is to be expanded in a phased manner. The
settlement of trades in the stock exchanges is undertaken by the
clearing corporation ($$#Eclearing house ($5# of the corresponding
stock exchanges.
<hile settlement of 4ematerialized Securities is effected
through 2S4B, the funds settlement is effected through the clearing
banks. The physical Securities are settled by the clearing members
directly with the $$E$5.
BENEFITS OF DEPOSITORY SYSTEM
n the depository system, the ownership and transfer of
Securities takes place by means of electronic book entries. &t the
outset, this system rids the capital market of the danger related to
handling of paper. 2S4B provides numerous direct and indirect
benefits, like9
1limination of bad deliveries-in the depository environment,
once holding of an investor are 4ematerialized, the Cuestion of bad
delivery does not arise i.e. they cannot be hold >under ob/ection?.
1limination of all risks associated with physical certificates-
dealing in physical Securities have associates security risks of stocks,
mutilation of certificates, loss of certificates during movements
through and from the registrars, thus exposing the investor to the cost
of obtaining duplicate certificates and advertisement, etc.., This
problem does not arise in the depository environment.
2o stamps duty for transfer of any kind of Securities in the
depository.
mmediate transfer and registration of securities- in the
depository environment, once the securities are credited to the
investors accounts on pay-out, he becomes the legal owner of the
securities. There is no further need to send it to the company+s
registrar for registration.
@aster settlement cycle-the exclusive 4emat segment follow
rolling settlement cycle of TR- i.e. the settlement of trades will be on
the -
nd
working day from the trade day. This will enable faster
turnover of stock and more liCuidity with the investor.
%eduction in brokerage by many brokers for trading in
4ematerialized Securities-brokers provide this benefit to investors as
dealing in 4ematerialized Securities reduced their back office cost of
handling paper and eliminates the risk of being the introducing
broker.
@aster disbursement of non-cash corporate benefits like rights,
bonus, etc..,
%eduction of problems related to change of address of investor,
transmission, etc., in case of change of address or transmission of
4emat shares, investors are saved from undergoing the entire change
procedure with each company or registrar. nvestors have to only
inform their 48 with all relevant documents and the reCuired changes
are effected in the database of all the companies, where the investor is
a registered holder of Securities.
1limination of problems related to selling Securities on behalf of
a minor- a natural guardian is not reCuired to take court approval
4emat Securities on behalf of a minor. 1ase in portfolio monitoring
since statement of account gives a consolidated position of
investment in all instructions.
OBSERVATION
The online in S1 is introduced to reduce and
eliminate all the discrepancies that arise out of manual trading
system. t has been developed to computerize the trading activity of
the broker. <ith the computerization of the trading activity, the
number of transaction and the volume of trading have increased to a
great extent. S1 is dealing in both 0S1 and 2S1.
The turnover of S1 has gone up during '((= with the
introduction of online trading system. The trading of S1 of the first
day was %s. .:.66 crores.
2ow the companies are also taking orders on phone call.
!nly S1 is not in phone order. Trading in O securities is not
available. (O securities are those securities which are not traded
regularly#. 0ank account for instant transfer is also not available,
which all the companies dealing with online trading are giving instant
bank aEc. all companies are giving offline option while S1 is not
giving any offline options. 8ortfolio valuation is not available.
7oreover, only govt securities and bonds are allowed for mutual
trading.
CONCLUSION
The comprehensive study of on >online trading system> at
nter-connected stock 1xchange has been an enlightening experience
stressing on the position aspects on security trading.
4ematerialization of shares and online trading has done in whole lot
of good to the issuer, investor, companies and country.
The 4epository system has reduced the time lag in
delivering and settlement of securities but also supported the cause of
providing more liCuidity to the security holder, the need for setting up
of a depository, paper less trading through online trading system and
settlement became in evitable and unavoidable for the smooth and
efficient functioning of the capital market. This system has proven its
worthy ness by increasing in the settlement will be done with in the
day in future is in itself an indication of how great a boon in this
system of !nline trading.

1-brokerages provide convenience, encourage increased
investor participation and lead to lower up front costs. n the long
run, they will likely reflect increased market efficiency as well. n
short run, however, there are a number of issues related to
transparency, investor+s misplaced trust, and poorly aligned
incentives between e-brokerages and markets, that may impede true
market efficiency.
@or efficiency to move beyond the user interface and into
the trading process, consumers need a transparent window to observe
the actual flow of orders, the time of execution and the commission
structure are various points in the trading process. n this regard,
institutional rules, regulations and monitoring functions play a
significant role in promoting efficiency and transparency along the
value chain in electronic markets. !ur analysis confirms that in the
context of online stock markets, the need for such intervention and
oversight it particularly strong.
SUGGESTIONS
The overall performance of S1, 48 and !2B21
T%&42, is good. 5ere are the suggestions for further
improvements of the performance in the future.
Holume of paper work is small but it is very complicated to
maintain data in system so try to reduce that by regular audit
and updating data.
7ost of 48s do not have the necessary infrastructure to handle
the high workload of transactions lending to many error by
48s, so by giving full infrastructure information to every 48
can avoid this problem
The pool aEc does not know the true owner of the shares and
hence dividends are paid to the broker instead of owners, by
this broker can do any manipulations or any fraud with the
owner, for this the owner can loose his dividend. 5ence for this
try to pay the dividend directly to the owner.
f the shares are fakeEforged which delivered by the broker the
shareholder can loose that system and have to receive another
lot of issued shares from the broker in -' days, this system
stands abused as soon as possible.
The online trading is easy to work but it is costly to maintain
and difficult to learn.
t should increase the speed of executing the orders.
7utual funds trading for other companies have to be
encouraged. f phone orders are encouraged, trading in z
securities are allowed, bank account for instant transfer are
provided and offline option are given then S1 would be
definitely improving in the turnover.
2ecessary steps should be taken by the exchanges to deal with
the situation arising due to break down in online trading.
nstant bank account should be provided as the other
companies are providing, because this helps the S1 in dealing
directly with the investors.
&nother important thing, which has to be taken into
considerations, is portfolio management. t should have a
separate department for portfolio management and should
guide the investors. f S1 takes initiative steps for portfolio
valuation of the investor+s .Then investors will be attracted
towards the S1 to a greater extent.
S1 has to give more advertisement through the media stating
the advantages to the investors by using S1.
Beverages should be provided to the investors till settlement.
Then only it encourages the investors to take active part in
online trading of the stock exchange
The software or the system used in online trading should be
advanced and the persons who operate should have minimum
knowledge or if they are very well versed about the functioning
of the system then it will be helpful in smooth functioning of
online trading.
n S1 investors cannot do their own trading on the system,
every time they have to consult the 48 members and has to tell to
hold the shares by his name, instead of this provide the web trading
facility to investors by this they can do their own trading by sitting in
front of internet.
.
BIBLIOGRAPHY
2ewspaper9 1conomic Times, The 0usiness
Standard.
<eb-site 9 www.nseindia.org
www.iseindia.com
www.nsccl.com
%eport 9 S1 %eport